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** GUEST BLOGGER: Borrowing to invest - is it right for you? (Shaun Banys, Sunlife Financial)

Updated Thursday, October 25, 2012  ::  Views (1949)

Borrowing to invest - is it right for you?

Like most Canadians, many of you are behind on your savingsHow do you increase your ability to save more in a shorter period of time? How do you do it in a tax efficient manner? Are there ways to do that outside of an RRSP? There is no single answer, but there are some creative ways in which we can fill in the gaps of our long term financial plans. Many of you are contributing each month to your retirement plan. Imagine using someone else’s money to work for you?!
 
What is Leveraging??
Leveraged investing is simply borrowing money to finance an investment. Many of you have already used this strategy through mortgages, RRSP loans, lines of credit or even car loans. 
What are the benefits to you?
 
By borrowing for non-registered investments, you may realize several advantages:
·         Compound returns: Invest a larger amount immediately, allowing more money to compound for a longer period.
·         Tax deductibility: Interest on the loan may be tax-deductible, making monthly interest payments tax-deductible.
  • Access to additional capital: How often have you come across investment opportunities, but were unable to capitalize on them due to limited resources?
Case Study
Let’s say you are currently making monthly contributions in the amount of $168.00 per month to your savings vehicle. With the leverage loan concept that would allow you to have an interest only investment loan of 50K to start earning money with. By using someone else’s money you can accumulate more money for yourself faster! Here’s how it breaks down after 10, 20, and 30 years:
 
Accumulation After 10 years
Monthly contributions: 26K @ 5% - 30K @ 8%
Leverage loan using 50K: 81K @ 5% - 108K @ 8%
 
Accumulation After 20 years
Monthly contributions: 68K @ 5% - 95K @ 8%
Leverage loan using 50K: 133K @ 5% - 233K @ 8%
 
Accumulation After 30 years
Monthly contributions: 136K @ 5% - 236K @ 8%
Leverage loan using 50K: 216K @ 5% - 503K @ 8%
 
Summary
 
As you can clearly see the leveraging concept increases your wealth on an much accelerated scale especially the longer you keep the loan in force. The numbers above don’t even take into consideration the tax deductibility of the interest only payment you make on the loan.  Ask me for more info!
 
Seize this opportunity to create wealth for you down the road. Feel free to message me for more details.
 
Shaun Banys          
Advisor
613.567.9700  ext. 2227            
613.230.7450  fax
613.797.3467  mobile

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